Business

Friday February 5, 2010

CPO prices up while rubber rally cools down

By HANIM ADNAN


Crude palm oil boosted by demand, rubber affected by CNY


nem@thestar.com.my

PETALING JAYA: Crude palm oil (CPO) futures rose to a two-week high yesterday on expectations of higher overseas demand for the commodity.

Meanwhile, the rally on the local rubber market cooled down as China’s purchases of rubber slowed ahead of the Chinese New Year celebration next week.

The benchmark April CPO futures contract advanced RM12 to close at RM2,510 per tonne. Tyre-grade Standard Malaysian Rubber (SMR) 20 added one sen to RM10.09 per kg and Latex-in-Bulk rose 35 sen to RM6.98 per kg respectively.

On the performance of CPO, a trader expects the high palm oil end-stockpiles in December of about 2.24 million tonnes could be substantially reduced in January, given higher overseas demand.

Independent cargo surveyors recently reported a 23.9% month-on-month increase in local palm oil exports for January. The Malaysian Palm Oil Board is expected to release its January 2010 statistics on stocks, production and export next week.

Citi Investment Research analyst Penny Yaw said in the firm’s latest plantation report that the average CPO price year-to-date was around US$740 or RM2,498 per tonne.

“We forecast CPO prices will average US$760 from the previous estimate of US$650 per tonne in 2010 and US$800 per tonne from the previous estimate of US$550 in the long term, factoring in favourable demand and supply interplay,” she said.

Oil World has forecast demand to outstrip supply growth in the major world oils and fats markets.

In addition, the world climate change could affect water availability, leading to droughts and floods which would take a toll on crops.

China and India, which account for 30% of world consumption of edible oils, are vulnerable to extreme weather changes.

Any potential shortfall in supply would have a positive impact on prices of vegetable oils, Yaw said.

In Malaysia, CPO production growth could be slower due to replanting. Another risk factor would be the impact of El Nino, and this will only be seen in the coming months.

As for rubber, Jupiter Securities head of research Pong Teng Siew said: “It will be interesting to know whether demand from China, the world’s largest rubber importer, will continue without its government stimulus spending measures.”

He said China was seen stockpiling on rubber since late last year but has since gradually slowed down, adding that it could be due to the upcoming Chinese New Year festival where most of its automotive plants would shut down for the celebration.

“It is said that most governments’ stimulus packages would have come to an end by the first half of 2009. My concern is that once China’s stimulus package stops, what will happen to the big demand for commodities like rubber and CPO?” Pong said.

A rubber trader told StarBiz that world rubber prices would not likely fall significantly this year amid the current tight supply situation.

Furthermore, the three major producing nations – Thailand, Indonesia and Malaysia – have plans to limit the drop in rubber prices should it fall below US$2 per kg.

“These countries will make sure that rubber price stays above US$2 per kg to ensure that the price is higher that the cost of production of their rubber smallholders,” the trader said.

Thailand is proposing to other producing nations not to sell rubber should the price fall below US$2.60 per kg.


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